HABIB BANK LIMITED

HABIB BANK LIMITED Habib Bank Limited was established in Mumbai on 25 August 1941 by the Habibs, a prominent Muslim family with business interests in the city The bank’s creation was encouraged by Muhammad Ali Jinnah to provide a source of institutional credit to the Muslim community Habib Bank not only helped the Muslim commercial classes; it also became the repository of the various fundraising schemes which Jinnah launched to help the Muslim community of British India After Pakistan was born, on 14 August 1947, the bank moved its headquarters from Bombay (Mumbai) to Karachi, the capital of the new country In Pakistan the bank rapidly expanded its activities In the industrial boom that followed Pakistan’s first trade war with India, in 1949, Habib Bank provided seed and operating capital to a number of new industrialists who came forward to take advantage of the opportunities the government offered The Habibs themselves entered industry, tapping their bank for funding The close association of finance and industry pioneered by Habib Bank and the Habib family prompted other large industrial families to enter the field of finance as well The advent of the socialist government of President Zulfikar Ali Bhutto in December 1971 suddenly changed the country’s economic environment Along with all the other private-sector banks, Habib Bank was nationalized by the new government on 1 January 1974

For the next two decades, the bank was run by the government, its officers were appointed by the Ministry of Finance, and it was subjected to all kinds of pressures to lend money to the political supporters of whichever government happened to be in power As was the case with other banks under the control of the government, Habib Bank’s financial situation deteriorated rapidly By the middle of the 1990s, the administration of Prime Minister Benazir Bhutto revived the program to privatize public-sector banks, launched earlier by the government of Prime Minister Mian Nawaz Sharif By then, however, Habib Bank’s nonperforming assets far exceeded its capital In 1996, there was a widespread impression in the market that the bank-like United Bank Limited, another large public-sector commercial bank-was insolvent This market perception made it difficult for the government of Prime Minister Benazir Bhutto to privatize the institution The government of Mian Nawaz Sharif that came to power in February 1997 took the position that professional managers appointed to public-sector banks, with the mandate to improve the quality of their assets, would be able to prepare the public-sector banks for privatization Accordingly, Sharif appointed Shaukat Tareen, a respected Pakistani banker working for Citibank, as president of Habib Bank Tareen and other professional managers were able to stem the deterioration of the banks that were under the government’s control However, Habib and other public-sector banks required large infusions of capital to restore their balance sheets In 2002, the government of President Pervez Musharraf accelerated the program for the privatization of banks

Habib Bank was privatized in 2004, with the Aga Khan Foundation successfully bidding for 26 percent of the bank’s equity The new owners strengthened the institution’s management and launched a number of new products to expand its presence in the market Zakir Mahmud- formerly of Bank of America and Crédit Agricole Indosuez-who had been appointed by the government of Nawaz Sharif as chief executive was retained in this position by the new owners